Cantor Fitzgerald VP Criticizes IDS Rule in Letter to OMB

    By Donald Zuhn --

Earlier today, David Boundy, the Vice President of Intellectual Property for Cantor Fitzgerald L.P., provided Patent Docs (and other members of the patent law blogging community) with a copy of a letter he sent to Susan Dudley of the Office of Information and Regulatory Affairs of the Office of Management and Budget (OMB).  The letter, which criticizes the IDS rules proposed by the U.S. Patent and Trademark Office on July 10, 2006 (see "Changes to Information Disclosure Statement Requirements and Other Related Matters," 71 Fed. Reg. 38,808), was sent on behalf of twenty-five companies and organizations, including Amylin Pharmaceuticals, Beckman Coulter, BD, California Healthcare Institute, Mendel Biotechnology, Metabasis Therapeutics, Novo Nordisk, The Scripps Research Institute, Wyeth, and ZymoGenetics.

In the letter, Mr. Boundy concludes that "the proposed IDS Rule has no merit whatsoever, and it would cost patent applicants billions of dollars each year just to comply with onerous new paperwork burdens."  As a result, Mr. Boundy requests that the OMB "put an end to USPTO's flagrant disregard for proper procedure and the exorbitant costs it imposes on its customers, and return this draft rule to USPTO for further consideration."

As with the new continuation and claims rules, Mr. Boundy accuses the Patent Office of "again misrepresent[ing] to OMB the breadth and depth of the effects likely to result," arguing that the proposed IDS rule "will impose billions of dollars of burden on patent applicants and owners."  To support this cost estimate, Mr. Boundy provides a letter from San Luis Obispo, CA patent attorney Philip Steiner, who determined that it would cost $1.9 billion to prepare patentability justification documents (at an estimated cost of $27,000 apiece) for the 480,000 applications per year that the Patent Office contends would require such documents under the proposed IDS rule.  In justifying these calculations, Mr. Steiner observes that:

Realistically, the business risk of preparing and filing a patentability justification document based on inequitable conduct considerations alone, places [a] patentability justification document in the same risk categories as patent infringement and patent validity opinions which range anywhere from $20,000 to over a $100,000.  I understand that several firms have decided that "examination support documents" ("ESD's," provided under the "Continuations" rule that OMB evaluated in April-July 2007, which in turn are very similar to patentability justification documents in this IDS rule) are "opinions" that must be reviewed by two partners of the firm, adding considerable billable cost to preparing such a document.

Mr. Boundy argues that while the proposed IDS rule will impose significant costs upon applicants, the rule will yield only slight benefits for the Patent Office.  In particular, Mr. Boundy notes that "[i]f the proposed IDS Rule reduced examination time by 10% for the 15% of applications USPTO says would be affected - a generous estimate of the average cost of considering IDS documents affected by the Rule - the potential reduction in total workload is only 1.5%."

In addition to the costs associated with the proposed IDS rule, Mr. Boundy argues that the rule conflicts with case law that requires that applicants and their agents fully disclose all potentially relevant information to the Patent Office.  As Mr. Boundy explains, this conflict arises when an applicant is aware of more than twenty prior art references, and therefore, would be required under the rule to either "[d]eliberately withhold information" from the Patent Office because the proposed IDS rule "forces applicants to submit only the 'most' material information," or submit a (dreaded) patentability justification document describing each prior art reference in detail.  As to how the Patent Office could propose such a flawed rule, Mr. Boundy observes that the Office "has no experience in the area of inequitable conduct (which applies only after a patent issues) and has developed no agency expertise in any area that would enable it to understand the consequences of its proposed regulation."

While Mr. Boundy asserts that the proposed IDS rule would adversely affect many different industries, he argues that the biotechnology and life-sciences industries would be disproportionately affected.  In support of this assertion, Mr. Boundy provides a letter from ZymoGenetics Associate General Counsel Jennifer Johnson, in which Ms. Johnson includes a statistical analysis of patents issued to the top ten biotechnology companies for 2005.  As a result, Mr. Boundy writes that:

[The Patent Office] asserted that "a threshold of twenty documents" would exempt all but 15% of applications.  However, in 2005 in the biotechnology arts, the "20 document" threshold punitively affects 73% of biotech patents, and the "25 page" threshold affects 94% of biotech patents.  Because of the disparate impact on a single, highly-innovative industry, the proposed IDS rule should not be adopted without a careful regulatory impact analysis.

With respect to the "25 page" threshold, Ms. Johnson notes that "biotechnology-related patent applications are generally greater than twenty-five (25) pages in length.  Accordingly, an applicant citing a U.S. Patent document or Foreign Patent document in the biotechnological arts is almost assured of having to submit an explanation with the IDS."  Ms. Johnson also suggests that "it is highly likely that 100% of biotechnology businesses that file and prosecute patent applications would be affected [by the proposed IDS rule], as all of the companies surveyed had issued patents in 2005 that would have triggered the heightened disclosure requirements under the proposed rules."

In his letter to the OMB, Mr. Boundy is not content to merely point out the significant flaws in the Patent Office's proposed IDS rule.  Instead, he also proposes several alternatives, including a restructuring of the fee schedule "so that applications that take more (or more specialized) examination time are charged proportionally higher fees," an allotment of examination time that recognizes differences in application size and complexity, the implementation of an "examination on request" system similar to that used in Europe, Japan, and Canada (which, Mr. Boundy notes, results in about 20% of applications simply being abandoned, with no expenditure of examination resources), and an expanded peer-to-patent program for public submission and comment on prior art references.

Comments

[anon]

drop it! drop it now! Drop 1.56 as to publications/journal items/office actions in other cases/copending applications i.e. anything published and searchable by the PTO.

Just keep it for sales/inventorship disputes etc.

[An Interested Party]

I find it exceedingly unlikely that I will ever file an ESD. The risk is too high. By filing one, you are asking to be sued for inequitable conduct.

[Patent Attorney]

The proposed IDS rule is a disgrace. It is nothing but an attempt to force applicants to more or less do the duties of the USPTO. How come the EPO and Japan Patent Office are able to do a competent prior art search without requiring applicants to even submit an IDS, much less analyze the references if their number exceeds some arbitrary standard? I hope this rule is dropped.